Colin Powell's final scene was a poignant but harsh exposure of his self-delusion and humiliation. The former general held in his head an idea of himself as sacrificing and disciplined. But the good soldier was dismissed at last by his commander-in-chief as a bad egg. Bush, Cheney and Rumsfeld regarded him either as a useful tool or a vain obstructionist. They deployed his reputation as the most popular man and the most credible face in the US for their own ends, and when he contributed an independent view he was isolated and undermined.

As secretary of state has been a peripheral figure, even a fig leaf, ever since his climactic moment before the UN security council on which he staked his credibility. There he presented the case that WMD in Iraq required war, a case consisting of 26 falsehoods, and about which he later claimed to have been "deceived". When the statue of Saddam was toppled, he offered President Bush 17 volumes of his Future of Iraq project, but it was rejected. Predicting everything from the looting to the insurgency, and suggesting how it might be avoided, the project was politically incorrect.

Powell had wanted to stay on for the first six months of Bush's second term to help shepherd a new Middle East peace process, but the president insisted on his resignation. Condoleezza Rice was named in his place. She had failed at every important task as national security adviser, pointedly neglecting terrorism before September 11, enthusiastically parroting the false claim that Saddam had a nuclear weapons programme, while suppressing contrary intelligence, mismanaging her part of postwar policy so completely that she had to cede it to a deputy, and eviscerating the Middle East road map.

As incompetent as she was at her actual job, she was agile at bureaucratic positioning. Early on, she figured out how to align with the neo-conservatives and to damage Powell. Her usurpation is a lesson to him in blind ambition and loyalty.

Powell's sacking and Rice's promotion are more than examples of behaviour punished and rewarded. His fall and her rise signal the purge of the CIA and the state department, a neocon night of the long knives. Bush's attitude is that of the intimidating loyalty enforcer that he was in his father's political campaigns.

The CIA has not been forgiven for failing to support Cheney's phantasmagorical case linking Saddam to al-Qaida. And the release in September of the outline of the most recent National Intelligence Estimate, laying out dark scenarios for Iraq, was considered an act of insubordination intended to help oust Bush in the election. The new CIA director, Porter Goss, has installed partisan aides at the top, and senior officials have been fired. He has issued a party line diktat that the CIA's mission is to "support the administration and its policies".

At the state department, senior career officers, especially those who were close to Powell, believe they are next on the chopping block. Indeed, Bush has charged Rice with bringing the department under control. Its bureau of intelligence and research, which has provided the most accurate analysis of Iraq, is a special target for purging. Cheney is heavily involved in the planning, and he intends to fill key slots with neocons and fellow-travellers. "By the time she takes over, Rice will have been manoeuvred into a prestructured department staff," one state department source, who has been close to Powell, told me.

The dictation of a political line has conquered policy-making. Since the US emerged as a world power, the executive, because of immense responsibilities and powers, has relied upon impartial information and analysis from its departments and agencies. But vindictiveness against the institutions of government based on expertise, evidence and experience is clearing the way for the intellectual standards and cooked conclusions of rightwing think-tanks and those appointees who emerge from them.

A system of bureaucratic fear and one-party allegiance is being created in this strange soviet Washington. Only loyalists are rewarded. Rice stands as the model. One can never be too loyal. And the loyalists compete to outdo each other. Dissonant information is seen as motivated to injure the president, disloyalty bordering on treason. Success is defined as support for the political line; failure perceived as departure from the line. An atmosphere of personal vendetta and an incentive system for suppressing realities prevails. This is not an administration; it does not administer - it is a regime.

On one of Powell's futile diplomatic trips, his informal conversation with reporters turned to a new book, The Accidental American: Tony Blair and the Presidency, by James Naughtie. In it, Powell is quoted as describing the neocons to British foreign minister, Jack Straw, as "fucking crazies". That, the reporters suggested, might be an apt title for his next volume of memoirs. Powell laughed uncontrollably.

· Sidney Blumenthal, a former senior adviser to President Clinton, is Washington bureau chief of salon.com